Looming inflation to dash rate cut prospects, says Assocham

Inflation would remain a key concern for the RBI and the government, dimming hopes of a cut in interest rates, industry body Assocham said today. The chamber observed that as uncertainty and apprehension loom over crude oil prices and vegetables, mainly on the back of rising retail prices of onion and tomatoes, it is disrupting household budgets. “However, much over-leveraged India Inc may wish it, the macro indicators like inflation as also the inflationary expectations, point towards the opposite. “So realistically speaking, we should keep our fingers crossed and hope that things do not become apt for taking interest upward, rather than downward,” Assocham said. It claimed that the Reserve Bank’s mandate and also its track record is that it has favoured a hard stance against inflation rather than batting for growth, while the government’s friendly advice for downward rates may not be available this time around. It said the RBI has a mandate to keep the retail inflation in the band of four per cent and the Consumer Price Index growth for October at 5.38 per cent points towards the threshold, the central bank may not like to breach it.
“While the October numbers show fuel and light inflation at 6.36 per cent annualised, and vegetables at above 7 per cent, onion and tomato may take the retail inflation further up in November. Firming up crude oil prices are adding to the anxiety,” Assocham said. Going forward, both external and internal factors would weigh on the mind of the Monetary Policy Committee of the RBI, said the chamber. To that extent, the macro picture may pose a challenge even as corporate India hopes for growth revival, which may now have to depend on factors other than cost of borrowing, it pointed out.